Can someone please see if they can show how the amount $220,000 int expense after short term borrowing was attained for #4 in the attached case study.

1. Comment on superior Outboard Motors' absolute and relative liquidity positions. Absolute Liquid Asset Current Liabilities Absolute Liquid Asset is cash and bank balances. Absolute liquidity = - Absolute Liquidity = Cash Balance = 918,280 Relative liquidity - Current ratio= - Quick ratio= Current Asset Current Liabilities Cash ratio= 5107880 = 3.04 1680000 Current AssetInventories = Current Liabilities (51078804060000) 1680000 - = = 0.62 Cash = Current Liabilities 918280 = 55% 1680000 CACL 3 , 427 , 880 = 18 , 260 , 000 = 18.77% Total Asset CA = Average daily operating cost - NWC to Total Assets = - Interval Measure= 5,107,880 = 75 days (24,969,600/365) Based on the calculations, it can be said that the firm's liquidity position is satisfactory. The current ratio shows that the current assets exceeds the current liabilities by 3.04 times, which implies that the firm is able to cover its current liabilities using its current asset. However, the quick ratio indicates that the firms current assets is tied up in inventories which are not selling and the company operates for 75 days in case of strike. 2. Examine the company's monthly inventory turnover ratio. What does it indicate? Month Beg. Productio Sale Inv n End. Inv Av. Inv Revenue s Inv. Turnove r Jan Feb March April May June July Aug Sep Oct Nov Dec 1450 2050 2650 3050 3050 2450 1550 510 110 10 410 904 600 600 600 600 600 600 600 600 600 600 600 600 0 0 200 600 120 0 150 0 164 0 100 2050 2650 3050 3050 2450 1550 510 110 10 410 904 1450 0 700 200 106 54 4,900,0 00 6,580,0 00 7,980,0 00 8,540,0 00 7,700,0 00 5,600,0 00 2,884,0 00 868,000 168,000 588,000 1,839,6 800,000 2,400,0 00 4,800,0 00 6,000,0 00 6,560,0 00 4,000,0 00 2,800,0 00 800,000 424,000 216,000 00 3,295,0 00 The turnover ratios of Superior Outboard Motors' were fluctuating over the year. September witnessed the highest level of turnover. While in Jan and Feb there were a zero turnover. In the rest of the months the turnovers were low. 3. How long are the firms operating and cash cycles? Using a suitable diagram show the breakdown of the firm's operating cycle into its relevant components. What do your findings indicate? Operating cycle = Inv. Period+ Acc. Rec. Period 0.0 0.0 0.1 0.3 0.6 1.1 2.3 4.6 16.7 1.4 0.2 0.1 360/Inv. Turnover ratio A/R period= 365 days/Acct. Receivable turnover Inv. Period= 365(Cost of goods sold/Average inventory) 365/ (20,160,000/4,245,267)) = 77 days A/R Period= 365/(Total credit sales/Aver. Acct. receivables) A/R Period= 365/(.6*28,800,000)/1,450,000)= 31 days Operating cycle= 108 days Cash cycle=Operating cycle-Acct. Payable period Cash cycle= 108-31= 77 days There is a 108 days lag between when the inventory is acquired and the payment is collected. However, the company takes 31 days to collect its receivables and pay its suppliers. On average there is a 77 days late between the times the company pays for its inventory and the time of collection. 4. How much higher would the firm's earnings per share have been if it had followed a policy of aligning the production output with the number of units sold each month? - Before Aligning - Total interest expense on short-term borrowing = $ 287,928 - After Aligning - Total interest expense on short-term borrowing = $ 220,200 Change in Interest Expense $ 287,928$ 220,000=$ 67,928 New interest after aligning= $ 1,500,000$ 67,728=$ 1,432,072 NET INCOME STATEMENT (AFTER ALIGNING)X Sales Cost of Goods Sold Gross Profit Overheads Depreciation EBIT Interest EBT Net Income Taxes (35%) $ 28,800,000 20,160,000 8,640,000 4,809,600 1,000,000 2,830,400 1,432,072 1,398,328 489,415 908,913 EPS= Net Income Number of Share 864,000 = 1,000,000 0.864 EPS before Aligning 908,913 = 1,000,000 0.908 EPS before Aligning The firm's earnings per share would be 90.8 cents per share if it had followed the aligning policy compared to 86.4 cents in fixed production 5. Calculate the monthly net working capital figures for the company. Comment on your findings. NWC =Current AssetsCurrent Liabilities Current Assets = Cash +Account Receivable + Inventories Current Liabilities = Account Payable X Cash ($) January February March April May June July August September October 200,000 200,000 200,000 200,000 200,000 200,000 200,000 3,498,200 4,673,400 4,461,200 MONTHYLY NET WORKING CAPITAL Acc. Inventory Value Total Acc. Payable Receivable [End Current ($) ($) Inventory*Price Asset ($) per Unit ($2800)] ($) 5,740,000 5,940,000 1,680,000 7,420,000 7,620,000 1,680,000 480,000 8,540,000 9,220,000 1,680,000 1,440,000 8,540,000 10,180,000 1,680,000 2,880,000 6,860,000 9,940,000 1,680,000 3,600,000 4,340,000 8,140,000 1,680,000 3,936,000 1,428,000 5,564,000 1,680,000 2,400,000 308,000 6,206,200 1,680,000 1,680,000 28,000 6,381,400 1,680,000 480,000 1,148,000 6,089,200 1,680,000 NWC 4,260,000 5,940,000 7,540,000 8,500,000 8,260,000 6,460,000 3,884,000 4,526,200 4,701,400 4,409,200 November December 2,901,608 918,280 254,400 129,600 2,531,200 4,060,000 5,687,208 5,107,880 1,680,000 1,680,000 Towards the last six months, the firm used 100% long-term debt to fund its net working capital. Whereas, during the first six months the firm used short-term debt to finance its net working capital. Thus, with regards to the firm's current asset we can say the company's policy is not very flexible. 6. Is the firm following an aggressive or a conservative financing policy for funding its working capital? Explain. We can say that the firms financing policy is quite aggressive. This is because the firm changes its debt financing from short-term to long-term within the year. Thus, making the firm more vulnerable to refinancing risk. 7. Is Matt correct in stating that the main culprit is the firm's production policy? Besides changes production level per month, Are they any other thinks that is the firm can realistic do to boost earning per share? Yes, Matt is right, because allying production rates to the estimated sales can help the firm to lower its interest expense arising from its short-term borrowing as mentioned earlier. Likewise, it lets the firm to save from the cost of production, this saved up cost can be put into productive use to generate more revenue. Thereby, increasing the firms overall EPS. 8. Using DuPont analysis comment on the firm's profit situation? Return On Earning: Net Income/ Sales* Sales/ Total asset* Total asset/Equity= 86400,000/28,800,000* 28,800,000/18,260,000*18,260,000/5,760,000= 3*1.6*3.2= 15.4%. Interest coverage ratio= EBIT (Earning Before Interest Expense &taxes/ Interest Expense= 2,830,400/1,500,000= 1.89, and then is in a quite risk position an far as its debt level is worried. 4,007,208 3,427,880 The firm's Return On Earning is fully good at 15.4% but most of it attributable to a high debt ratio the firm has a fairly low interest coverage ratio 9. Do you agree with the production manager's comment that 'there's got to be better way' please explain? An uniformity of production output to expected monthly sales would command to some layoffs and cutback during lean months, also this policy would not be regular with the firm's usually \"caring\" policy the health of the firm and its perception by analysts is of dire importance. Failure to control coasts could lead to permanent closure of plants loss of jobs, which would be worse for the employees. \"A better way\" that would keep all sides happy would obviously be preferable but seems unrealistic